615: Stop Chasing Sexy Businesses - This Boring One Made Me $500M+ | David Royce

26:08Can I get another month or two months before I pay out this back-end bonus payment to you, and I'll pay you 10 % interest on it? and they were more than happy to do it because I had worked with all of them. I had trained all their salespeople with them. They had a lot of trust in me and faith, and they were all planning to come back the next year and work with me. So I think trust is really important, uh, and just having good people, you know, building the right culture so that they're okay. It's not something I'd ever recommend to people. You don't want to ever do if you don't have to, but yeah, almost bankrupt and you're one.

26:38Yep. Great story. And, you know, you talk about kind of building you've been touted that you want to create or your your goal with your you know when designing a service model you aimed to be the in and out burger of pest control so what specific customer pain point did you solve regarding the the duration of thoroughness or service that allowed you to provide premium yet efficient experience? Yeah. So that was all about how do you scale quickly? And the secret to that, as I read in multiple books, is keep it simple. So what we did is just said, let's be the best at residential services. Let's focus on families that have kids, that have pets, and let's be great at that.

27:31We don't need to, in the beginning, go chase commercial services. commercial, you know, if, if a customer has a commercial service, you know, and somebody that's barely basic and they want us to do it, we'll, we'll go out and treat it, but let's not go get into restaurants, you know, and hospitals, like more technical, um, you know, commercial services, um, wildlife or termites, you know, things that are way more intense, you know, let's let the other companies have that. Cause what I wanted to do was, uh, scale across the entire country. and it was so much easier by just being the very best at what we did as opposed to trying to be the biggest or you know service every which way you possibly could so it's very much more this in and out burger philosophy and then we really nailed it when it came to uh customer service and you know providing even more services within the residential service and you've also said that only the paranoid survive.

28:26So you're constantly seeking improvements. And that comes from a book, right? Yeah. I first heard it through Bill Gates. He used to say it a lot. But it's that notion that if you're not growing, you're dying. I believe in business. Everybody's moving up into the right. They're all working to get better. And so if you stop, you're actually going backwards because everybody else is moving forwards. And I usually give the example of the Fortune 500. I think it was invented in 1955. And today, only 10 % of the companies that were on it in 1955 are still there. And so what does that tell us? Tell us, we're really freaking hard to keep up with everybody else, or otherwise you're going to become a dinosaur and go the way of the dodo.

29:14A story, I'm sorry, a brand is it's a story that never stops unfolding. And there's like in my mind, there's three different stages to business. There's a startup. There's a scale up as a screw up. And the screw up phase is when you get to the point where you say, you know what? It's we're all the best in the industry. We don't need to be better. Like we've always done it this way. Like those are some of the most dangerous phrases in business. because everybody else is like working hard. They're trying to catch up and someone else will beat you and ultimately you'll go downhill. So how have you maintained that paranoia and hunger at the same time?

29:55Like even like most people, like if I spoke to a friend and said, you know, hey, I'm going to sell my business for 10 million. They'd be like, you know, this is a friend that does not entrepreneurial kind of, you know, works in corporate whatnot. you say, yeah, well, why wouldn't you? That'd be stupid. Then you don't have to work again. You set up, you know, most, a lot of people would be comfortable, right? A lot of people are comfortable. So you've sold four businesses now and multiple, you know, eight figure exits. We can't talk about the latest exit, but, you know, let's just say nine figures plus.

30:34You know, most people would settle. What have you done to maintain that hunger? because even when you are winning, it's easy because you've been working so hard, because it's a grind, because it's an absolute dogfight and building a business at the levels that you've built is not easy. It's nice to just kick back and relax a little. Like what has kept you paranoid? What has fueled your hunger? It's a great question. You know, I went through that phase where, you know, I saw my first company and I had a money manager say, oh, this is awesome. You never have to work again. And it like was a huge turn up.

31:14I didn't end up going with it. I was like, why on earth would you stop? I'm like 31 years old. Makes zero sense. You know, I'm ready for the next level. You know, I was able to do, you know, kind of a small regional business in Southern California. I want to go into multiple states and see if I can tackle that challenge. It was fun. You know, and I told people, people asked me like, how long will you do this for? And my answer was always, well, as long as it's fun and it's interesting and I'm growing, I'm learning. But that's what was exciting to me. And then as I started to question where I sell the second one, Forbes said it was for $30 million, sell the next one, Forbes says it's for$135 million.

31:52Then the question starts to become, well, what does it for you? If it's not the money so much anymore, you're at a really great spot financially. And for me, it was developing leaders. I had so many people come work for me, start out maybe as a technician or a sales rep and work their way up into sales management, regional management, even onto the executive team. And that was really inspiring to me. I loved developing leaders. Gandhi said, the sign of a great leader is not how many followers you have, but how many leaders you create. And I love developing people. It's the same reason like pest control is never that excited about pest control.

32:32It's not that hard to do. What I really found joy in was training college students and providing that same, you know, try to provide the best, um, most financially rewarding experience, you know, that college student can have, you know, to be able to make six figures in a four month summer in college is it's nuts. So I really enjoyed working with the salespeople and that's where I initially gained joy was from that. And then it was in, uh, you know, developing leaders and then it was, all right, let's see how big we can scale this say and it's really cool like you're providing thousands of jobs to people and it feels really good yeah that look i really resonate with what you're saying because um i mean listening to a lot of tony robbins again it's it's um it's funny i i go through phases do you like tony robbins love him the year that i sold um the the most i sold 903 accounts ever sells rep sells about 100 on my way my drive out had to drive 20 hours from utah to houston texas i listened to tony robbins for 20 hours it was the first time i'd ever listened to him and it was amazing i listened to it over the summer as i was you know just driving out to my areas to go sell great stuff yeah there you go so um it was yeah it's look i've interviewed him twice and uh it was really weird i i listened to an interview that i did with him seven years ago and it was more so much it was more so that interview around kind of his latest book um at the time was called Money Master the Game.

34:03And he interviewed people like Ray Dalio and stuff. And it's crazy. Seven years ago, the stuff that he was talking about to me around the markets, how you have to think mentally and emotionally about managing your money and building personal wealth. It was so spot on. But coming back to it, I've been listening to a lot of Tony Robbins and he, you know, one of his, one of his, his big, big things that he preaches is the secret to happiness is, is really progress. Progress equals happiness. And what I'm hearing through, you know, it's not about the money anymore, right? It's about the progress and it's about evolving and growing.

34:48And yeah, I have a leadership or had a leadership coach and that was, you talk about developing leaders and that was the thing that he and I really kind of used to have a lot of conversations and he really pushed me and challenged me because that's that's how you scale businesses right it's developing more leaders leaders that create leaders and then like that that is the key that is the key to it and looking and finding and identifying potential leaders and then lifting them up and taking people to places that they never thought they would go So I'm curious, when you were growing Aptiv, you know, it was on the Inc.

35:295000 list, I think it was four consecutive years in a row. So if you were to nail like one thing that was really kind of a key secret ingredient to just consecutively being on the list, then eventually exiting for, you know, nine figures and above, would it be like your biggest thing is just creating more leaders and just an insane focus on developing leaders? That's where it's at to scale a company. You know, it's never one thing. You know, one thing can probably be a big portion of it. But yes, developing leaders, you know, developing a secret sauce or secret recipe that you can scale and deliver to everybody else, making it fun, getting people to buy into the vision, you know, especially for post-control, it's not a very sexy industry.

36:23And so getting great talent to come be a part of that is really critical. and we found lots of ways. I studied Silicon Valley and my industry wasn't as exciting to me. It was probably the thing that held me back from wanting to go into it. But when I sold EcoFirst, I really started looking at Altera and saying, okay, we've got some extra money here. What can we do? And I knew that recruiting the right talent was going to be critical. So I looked down at Silicon Valley, like for ideas. I said, yeah, I looked at, you know, what's meta now, but you have Facebook, Instagram, looked at Google's headquarters, went towards Zappos, toward the Nike headquarters as well, Tesla.

37:07And I just was getting ideas for really amazing cultures and headquarters, facilities, ideas of how they treated those employees. And so we built a killer headquarters. We had a NCAA basketball court, a golf simulator, movie room, you know, foosball, ping pong, cool tables, air hockey, all that sort of thing. And then now we could have like really great all hands meetings. You know, we could have like top author, business authors come in and talk to us. We could do charity events. You don't have like a NBA shootout or whatever, have an NBA player come and everybody like would say, okay, well, how many three pointers can he do, you know, within one minute, you know, to raise money.

37:48Or we'd have rock concerts like Dan Reynolds from Magic Dragons came out and played for us. And, uh, you know, the guy from the neon trees came and played for us. We had some DJs, you know, just for different events. So it was really fun. We just started thinking like pest control companies don't do this, but we're going to be our own thing. Like we want to be a really great company and get back to our people. We got a 36 person suite at the jazz arena. Yeah. So, uh, all of our employees, they could just, anybody at headquarters could sign up to go to the jazz game, you know, and there's almost one or multiple games every week or whatever.

38:21other things too, like the retreats. We really got into company retreats and traveling all over the world. We started in Hawaii and we did Caribbean and then we're like, oh, well, what about Egypt or Africa or Thailand? And at these retreats, it was, let's get the top 5%, top 10 % of salespeople there, sales managers, or let's get operations managers together and let's brain share. Let's create our goals for the next year, but let's get them together to share information as opposed to like hoarding it just to themselves and get them to know each other and build that camaraderie. And then the second half of the day is we'd go do crazy stuff.

38:59Like we do skydiving or we go swim with sharks or, you know, we go hike a volcano, you know, and look at lava like up close. We'd go drive Ferraris out on a racetrack or do dune buggies in the desert. And so we just kind of came up with all these really fun ideas to make it not just a pest control company, but it was an experience. and it was a really fun culture to be a part of yeah i can see okay so i can see i when you talk through kind of your approach it's a very different approach to building a traditional pest control business white collar approach right to a blue collar industry yep okay um you talk Talk about before not, you argue against following your passion and you say that founders should focus on solving problems and developing their strengths.

39:56Can you talk us through that a little more around like the ratio of focus versus passion versus market opportunity? And what do you think aspiring founders should adopt? so one i think that people love what they're good at and two if you follow passion you know there's a lot of passion industries out there and they'd be super fun like i was a band in college like i had a lot of fun with music uh but it wasn't a lot of money in that we weren't that good uh same thing like a lot of people run into film or tv you know or the restaurant business because they're passionate about it but they've never done it before uh and those monies those industries they don't typically make a lot.

40:38You really got to be in the top 1 % of 1 % to do well at them. And so, as you know, it was horrible in the beginning, but I found passion in it. I was able to become more so obsessive about it. I think obsessive is the right word as opposed to passion because passion's kind of like when you first get into a relationship, the chemicals are flawed and And you're so excited about the relationship with a partner. But after a year or two, those chemicals kind of wear off. And then you're like, all right, well, we got to figure out how to be committed, especially like we're going to raise a family. It's more than just passion because passion can run out.

41:20So there's a lot of industries where people aren't very passionate. In fact, there was an article in the Wall Street Journal this last May that came out was called The Stealthy Wealthy. And there's a professor at Princeton who's labeled us businesses that are kind of in these unsexy industries, the stealthy wealthy. And the top 0.1%, not just the top 1%, but the top 0.1%, meaning you make$2.3 million or more, 43 % of the top 0.1 % is in these unsexy industries. And so I think there's a lot of people who are missing the ability to go build and scale something that could be really incredible that larger strategics or private equity groups want to buy simply because it's just not on the radar.

42:06The AI, tech, those are more sexy businesses, right? They're disruptive. And so they're going to get the majority of the headlines. Pest control, not so much. Yeah. And when it comes to that, you have an interesting story around, you know, your past, yeah, it's your past three businesses, right? So you've sold your past three businesses to the same buyer. Yeah. The first three businesses. Yeah. I sold all of them to Terminex. So talk us through that. Like you achieved 75 million in revenue with Altera before selling it in fall of 2015. and the reported consolidation pushed valuations as high as 2.5 times revenue.

42:50So talk me through, you just kept starting business, there was a non-compete, that's very rare and unique. It is, it's very unique. And there's multiple industries where you could do this, maybe alarm system. There's a lot of blue collar businesses where if you have public companies, they got to grow every quarter. and maybe half of their growth or more might be M &A. And so in order to grow, they've got to buy customers, but they're really just looking for the customer base and the corresponding technician. That's all they want. They don't care about the executive team in most cases. They don't care about a sales force or whatever because they have all that.

43:29They're just trying to buy streams of income so their numbers look better and the stock price ultimately goes up. So for me, the first deal I structured, there was an on-compete. I couldn't go back to the same location, but I could go start a new company. And we're really good at training technicians. So within two or three weeks, we could train a whole new technician force. And we got to keep the golden goose, got to keep our sales force, got to keep our executives. And then the second one, I just said, look, if you're interested in buying us, we're not going to move locations. We won't knock on the doors of our previous customers.

44:08So for EcoFirst, we'll sell that to you. But when we start Altera, we still have to go back to the same locations. And they agreed to it. They said, that's fine. We trust you, you know, where the homes are and that sort of thing. And if there's a problem, you just call us and we'll figure out if a sales rep is, you know, knock somebody they shouldn't have when they knew that they were, you know, the TermX customer or Forma, EcoFirst customer. And then with Altera, the same kind of thing. We just did an asset deal and they bought the customer base, the technicians, and did the exact same thing for this that we could start Apto.

44:43Yeah. And what would you say to the statement that businesses aren't bought, they are sold? Did you run a process or you just kind of always knew that you could keep building up the same type of business multiple times over and keep rinse and repeat? Talk me through that. Like, was there a strategy there that you were going to build it up to, you know, north of nine figures in top line and then go, okay, I'm going to sell to the same guys and then I'm going to run a process or they were tapping you on the shoulder. Like, yeah, talk me through that. I never knew who we would sell it to. I just knew that Termrex was a buyer.

45:19I knew Orkin was a buyer. There are several other companies, depending upon the size of your business, that could be buyers. And because my old boss had sold to a company, I understood the basics of how to sell it. to sell. And I love negotiation. I'm pretty good at it. So I was very confident in going in and selling my businesses directly to those, basically running my own prospects and selling it. As I started to get bigger with Altera, I hired someone to come in and help with that. And with Aptid, we definitely ran a process. We hired a big investment bank, JP Worden, to help us run through that process.

45:56Because then you're no longer just going to strategics. For us, it was like, hey, we want to target all the private equity groups. We're such a big company. If a company might have to drop 10 figures potentially, we're going to have to go wide to see who wants to buy us. And what advice would you give to founders? Because you've got a history of building companies and selling them and getting great growth and exit over a short period of time. what advice would you give around like structuring your company to be sold to sell quickly versus building one like active to operate long-term with the brand and leadership intact yeah i'd say always begin with the end of mind because it can't hurt to be thinking okay how would i structure this in the best way if a buyer was interested in buying the business and you know the first three The companies, all four companies are really the same organization because all we did, we took the key people, we changed the name.

46:58We were just better capitalized. And now we could expand to lots and lots more locations. And I learned from that first business where I almost bankrupt it, where I said, you know what? We might need more capital than I have right now if we want to keep up this growth rate. And so that was the real reason we sold it. There's no reason to just sell the businesses other than let's get capital because then I can still control all the equity and keep it. Why would I go get investors, waste time trying to find investors and just for the sake of keeping the same name? So that's why we sold and continue to grow.

47:31And then on the last business, Aptiv, we just said, look, we have so much money, we don't need to sell anymore. Let's just keep building a legacy brand and someday we'll ultimately sell it. But we want this brand to live on forever. And one thing you did was invest in software development to improve efficiency and also profitability. Can you talk us through that as well? Because I think that was really smart. Yeah, that was one of the things, looking at Silicon Valley and just going, okay, how can we differentiate from our competition? And I don't think any pest control companies were looking at building their own software back then.

48:08It was pretty early. The software that was out there, like the CRMs, the software that was available to pest control companies. It just wasn't very sophisticated. And so we started looking at how can we create more efficiencies, operational efficiencies? How can we obtain more sales if we had a sales program or some sort of software? And so a few things on the sales side, obviously we're trying to increase revenue and increase profitability on the ops site. On the sales side, it was nice because as opposed to a training manual, some sort of paper training manual salesperson can have everything right there, right?

48:44We'd create like a software for it. They could see it. We could create like modules or for them to go through and know if they've got all their training done. Um, they can see all the training videos, any moment on their phone. Now, uh, they didn't have to come into the office to watch them. And then, uh, one of the really cool things that we did was we created a competition. So over the course of the summer, people start to get, they start to slow up, you know, in August, cause they're about to go home. and the sales start to slow down. And you're like, all right, well, how can we fix that? How can we motivate them?

49:16Can we turn this into like a sport? And so it's kind of the concept from March Madness. We said, because we're so big now, sales reps in one location competing against other sales reps, it's not enough. Let's take every sales rep and have our software figure out who is about just as good as the next sales rep, anywhere in the country. And then we'll do tournaments from mid-July on throughout the rest of the year and have these sales reps compete with each other. And so then it's a real competition. So whoever's going to win the incentives for that week or whatever else, they're fighting. And we found that we could drive sales 20 % to 3 % higher on sales days, on tournament days, by doing this.

50:01So really great, really great, really great win for us. Yeah, really clever. So you really have taken, yeah, basically a non-sexy traditional business model and applied all of the kind of white collar, like you said, kind of strategies and building that business and just come in and really capitalize and blowing up that market. what advice would you give to founders that are thinking of the next AI software idea, the next physical product, Shopify kind of brand? What would you say? So I would use AI right now to go ask it, what are the most profitable blue-collar businesses? And that's the most amazing thing about it.

50:47It'll spit out almost whatever you want to know about an industry. You could go ask it, what's the average profit margin in this company? What does it take to build this sort of company? What an amazing time we live in, where you can hear podcasts, you can go on the internet, you can use AI to get access to all this information. It used to be you went to college to go to business school to learn how to be a business owner or work in business. And today it's mostly out there. So I think going and searching for it first, experiment, like look at what different jobs are out there or different markets are out there.

51:28See if private equity, for example, might be getting into that space. That usually means it's a pretty lucrative model and it's probably a recurring revenue model. And then I would say, go get experience in that industry. Go try it out because you don't know if you like it, but if you go try it out and then you're actually good at it and you can create a competitive advantage, that's, I mean, that's basically what I did. So I'm preaching the same thing. Then you can go and start your own business, you know, hopefully, and people are more willing to invest into you. And I like that model much better.

52:02I think a lot of people think, oh, entrepreneurs are like these crazy adrenaline junkies. They're going to jump out of a plane without a parachute. And I'm not like that at all. Like I try to mitigate risk in every way I possibly can. So going and starting a business after I'd already gained experience and was one of the very best at what I did, it allowed me to mitigate the majority of my risk. It's the same reason why franchises, they flip, right? So the average business in the United States goes out of business in five years, or I'm sorry, 80 % of businesses are out of business in five years.

52:35But franchises, if you saw a franchise, meaning you already have a proven business model, has the KPIs to look at, it has the types of financials you should be thinking out in terms of how to scale. You have a 80 % chance of success. The odds actually flip. And so that's why I push experience. I think it's really great to have that. Yeah, I agree. I agree. I think, you know, one of my mentors once said to me, you know, before you start a business, go spend time with a person or spend time in that industry or market. And then you'll truly know if that's the kind of business you want to start or if that's even something you want to do.

53:14And it's the best way to stack the deck in your favor to know it's something you want to pursue. And you find all the pain points, right? You're going to find all the pain points while you're in it. Like when I was selling door to door, I talked to 60 ,000 homeowners, like knocking doors. And you learn like what they're asking for. And they're like, the industry doesn't really have this. It doesn't have this. And then you can go, okay, well, I can actually implement that. you know have a competitive advantage now david this has been an incredible interview we've been going for an hour now my last question for you was were there any books any recommendations that you could share on recommended books that people need to read that have influenced your career i also just want to say that you know what you've built is so impressive was any impactful books that people must read.

54:04Yeah. So the one book that I would say is just critical. If you're going to build a business and you're thinking long-term, read Tony Hsieh's Delivering Happiness. I read it when I was at EcoFirst, as we started to expand, I was struggling with the idea of how do we keep that same family feel? And how do we develop a culture if we're spread thin all over the country? And I can't be in every location to dictate what that culture should be. and Tony had built his first business. I think he sold it for 250 million or something. And the first 10 employees he had, everything was great. But as they started to rapidly grow in scale, they just started hiring anybody that had the resume, but they weren't really hiring for the specific person.

54:49And he said he got to a point where he'd go to work and he just didn't want to be there anymore. He just didn't relate with the people, the culture, didn't have even, you always have a company culture, right? But it wasn't intentional. And so he sold that business. And when he got into Zappos, he was very adamant about, let's have core values. Let's have a mission and let's have a really, you know, refined hiring process so that we're only bringing people that we're excited to work with and who are going to add to the company culture. And he saved me a lot of money because I was thinking about going to an executive MBA program just to try to figure out that question.

55:29That was my big struggle. So yeah, anybody that's going to start, I think that's one of the best books. We create all of our core values. We asked all of our people how to do that. A lot of me thinking more about core values and the headquarters and the amenities studying Silicon Valley, a lot of that came from that book originally. And I got to go talk to Tony at his place. You can go through Zappos anytime. They have tours that you can do. And then they actually have a cultural conference. If you want to go there for three days, they'll teach you a lot of their secret sauce and how they do it.

56:07And I got to talk to Tony and I asked him on a few different occasions. And I asked him, I said, okay, I love that you're doing this, but I got to ask you why? Because you're giving away your competitive advantages to anybody. And he said, well, I just think the world would be a better place if everybody operated this way. And I realized for me how selfish I was being by like hoarding all the information to myself, like for my own business. And as I've gotten older, I really learned like to share information with other competitors and build relationships, you know, and it's the best, it's the best way to live.

56:47I love giving back. It's one of the reasons why I do podcasts. I think it's, you know, it's great to share and help inspire others. So I hope most entrepreneurs, they, they learn that principle over time and want to get that. Yeah. It's a full circle. So look, dude, thank you so much for taking the time. Congratulations on all your success thus far. Excited to see what your next move is. You're always welcome back on the show and thank you again for your time. Awesome. Thanks, Ethan. Great to be here. Hey, Founder Fam, thank you so much for tuning in today. And if you enjoyed this episode, please take the time to leave us a review and let us know what you think.

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